Almost since the day Barack Obama was sworn in, Wall Street has been warning about the catastrophic consequences of his presidency on its industry and, by implication, on the economy and society beyond. Last year, their house organ, the editorial page of The Wall Street Journal, called the president “a determined man of the left whose goal is to redistribute much larger levels of income across society.” Steven Schwartzman of the Blackstone Group compared his efforts to raise taxes on private equity firms to Hitler’s invasion of Poland in 1939. And if the president wins re-election this fall, “we might as well leave the country,” one billionaire hedge funder proclaimed on CNBC earlier this year.

But Wall Street likes nothing if not winners, and now that Mr. Obama seems more of a favorite in November and the sharpest GOP strategists caution that taking over the Senate remains a longshot, attention among the titans of finance has turned to their last bulwark against runaway regulation: the House of Representatives.

The crux of the concern is the House Committee on Financial Services, through which some of the most critical regulatory legislation, including Sarbanes-Oxley and Dodd-Frank, has passed over the past decade. Because even if Republicans retake the White House, or snatch the Senate away from Democratic hands, it may not matter much for Wall Street if the House flips from Republican to Democrat and the House Banking Committee ends up in the hands of Maxine Waters, the 17-term Democrat from South-Central Los Angeles.

Wall Streeters say that the prospect of Ms. Waters at the helm of the Financial Services Committee could actually make them regret chasing Barney Frank—who was slated to retake the committee before he abruptly announced his retirement this year—out of Congress.

“Just the name,” said one financial industry lobbyist, “sends shivers up the spine.”

Why the worry about Ms. Waters as the nation’s chief banking regulator? It doesn’t stem from comments she made in her first term in office, when she suggested that the Rodney King riots that occurred in her neighborhood would better be thought of as a “rebellion”—since “riot,” she maintained, “sounds like it was just a bunch of crazy people who went out and did bad things for no reason. I maintain it was somewhat understandable, if not acceptable.” And it doesn’t stem from her more recent suggestion that “The Tea Party can go to hell” a suggestion appended by the promise that “I intend to help them get there.”

Rather, most of the concern stems from what is perceived as a general hostility to the banking industry, if not to the economic system as a whole.

“She is wacko,” said one New York banking lobbyist. “She is very flamboyant, very old school. She is not one of these younger, sophisticated members of Congress. She has no grasp of the technical side of finance. She was elected during a different time in history and she hasn’t read a book since.”

The corridors of Wall Street’s financial firms are filled with stories of Ms. Waters privately and, in some cases, publicly browbeating executives over what many see as issues outside of their firms’ purview.

“Most of the international banks would start folding their tents” if Ms. Waters were to became chair of the committee, said John Allen James, the executive director of Pace University’s Center for Global Governance, Reporting and Regulation and a former consultant for McKinsey. “She is anti-bank. She doesn’t like anybody that wears a suit and a tie. She yells at them, and says why aren’t you doing more to address the housing problem, why aren’t you doing more to raise the boats of the less fortunate. It is a total misunderstanding of what capitalism is.”

Thus far, Ms. Waters’ most noteworthy contribution to financial reform is a little-noticed provision she slipped into Dodd-Frank that would compel financial firms that do business with the government—i.e., all of them—to hire more women and minorities and created 29 separate offices of minority and women inclusion in places like regional federal reserve agencies and federal agencies like the Department of the Treasury and the Securities and Exchange Commission.

“This radically changes employment law,” said Diana Furchtgott-Roth, a senior fellow at the Manhattan Institute and former economist for the Department of Labor under President George W. Bush. “Right now the rule is that you can not discriminate. This is fair inclusion, which technically means that even if no woman or minority has applied for a job at Citibank, no Hispanic or Pacific Islander, Citibank can still be in violation of the law for not having such a person on staff. It is a dramatic departure from existing employment law.”

Dodd-Frank, which promised to regulate the financial sector in a way not seen since the Great Depression—and which business leaders promise will be their ruin—remains very much a provisional piece of legislation and how its key elements will be enacted remains still in dispute.

But if Ms. Waters takes charge of the committee, backed by an Obama White House and a Democratic Senate, Ms. Furchtgott-Roth said financial firms can expect the more onerous interpretations to win out. Banks, she said, may be less likely to lend if their lending comes with greater restrictions or more strings attached.

Ms. Waters could not be reached for comment for this story.
Most economic policy experts say that even if the Democrats were to retake the House, there would be little appetite for further regulation—the bruises from the battle over Dodd-Frank still smart, and it remains vastly outside the realm of plausibility that even if Democrats hold onto the Senate that they will reach the 60-vote threshold required these days to pass major legislation. A Democratic controlled House would likely be a result of a nationwide rejection of the Tea Party, and the flame-throwers on the left may be quieted in favor of the forces of moderation.

But that doesn’t mean that Ms. Waters as chairperson couldn’t have an impact. Even if the status quo in Washington were to entirely reverse itself—and the Republicans were to retake the White House and the Senate, and the Democrats captured control of the House—bankers say they still would have a reason to be afraid. Committee chairs are granted vast powers in Congress, and Wall Streeters expect that a Chairwoman Waters would haul them before the committee routinely. The big banks could face the prospect of regularly trekking down to Washington (on commercial airlines, one assumes) to explain their lending or hiring practices.

“She is in the mold of the grandstanding politicians,” said Anthony Randazzo, the director of economic research for the Reason Institute, who has testified in front of the Financial Services committee. “When she asks questions, she doesn’t want to know an answer, or know what my opinion is as an expert. She is always trying to push particular idea or trying to get out of the process some statement that she could criticize, or trying to back up some preconceived notion of hers.”

There are certainly those in finance who cheer the prospect of a Chairwoman Waters, especially those who work with community banks and those who have a stake in women- and minority-owned financial institutions. But if Democrats do take control of Congress, many on Wall Street say they are holding out hope for an alternative chair of the Finance committee.

“In New York we have a very strong interest in the viability and the strength of the big banks since they are our key institutions,” said Kathryn Wylde, president of the Partnership for New York City. “Much of America is focused on how we can help the community banks and take it out of the hide of the big banks, but fortunately most of our New York representatives in Washington understand that the U.S. position in the global capital markets is determined by the strength and vitality of our big banks.”

And so most of Wall Street is hoping that a local representative, Congresswoman Carolyn Maloney of the East Side, emerges as an alternative to Ms. Waters.

“You have different versions of Democrats and Maloney is far more moderate,” said Mr. James. “And she would be under the influence of Schumer and Bloomberg and Cuomo, who say don’t kill the goose that lays the golden egg.”

For Wall Street, there is a reason to hope. For the past several years Ms. Waters has been ensnared in an ethics investigation into whether she tried to steer money from the 2008 financial bailout to a minority-owned bank where her husband was shareholder and board member.

Opinion is mixed about how much the ethics probe will hurt Ms. Waters.

“For Nancy Pelosi, Maxine is a three-fer,” said one congressional staffer, noting that it will be Ms. Pelosi who ultimately makes the determination if Democrats retake control. “She is a fellow Californian, she is an African-American woman, and it is her turn.”

Others note that there have been a number of Democrats, including New Yorkers Charlie Rangel and Ed Towns and Michigan’s John Dingell, who have been booted from committee leadership positions despite their seniority, and say that there has been a backlash among Democrats to this practice.

“A lot of folks in the CBC [Congressional Black Caucus] would not look too kindly on an outside challenge,” said one Capitol Hill lobbyist. “They want to go back to the seniority system.”

Ms. Maloney has publicly said that she is not interested in challenging Ms. Waters for the post, but there is hope on Wall Street and among some on the Hill that she is merely trying to avoid a public confrontation, especially when the prospects of a Democratic takeover remain something of a longshot.

“I have talked to a lot of Democrats in Congress and there is a sense among them that seniority would not be triumphant in this case,” said one Wall Streeter closely aligned with Democrats in the House. “The ethics issue should be enough for Maxine. This isn’t a foregone conclusion.”

There is rich irony in Wall Street suddenly coalescing around Ms. Maloney in an effort to stave off Ms. Waters. In 2010, Ms. Maloney faced a fierce primary challenge from Reshma Saujani, a former hedge-funder who slammed Ms. Maloney for being needlessly hostile to the financial industry. Then, Ms. Saujani raised $1.5 million for her campaign, mostly from those same Wall Street titans now putting their faith in Ms. Maloney.

A pitched battle between Ms. Waters and Ms. Maloney, then, represents an acute dilemma for Wall Street, especially for those who give money to political campaigns. Help the Republicans maintain control of the House to keep Ms. Waters away from the chair? Or hedge your bets to increase the likelihood that in the event of a Democratic takeover, Wall Street donors can persuade leadership to give the gavel to Ms. Maloney?

“People in finance are incredibly concerned,” said one Hill insider close to both Ms. Maloney and the financial community. “They worry that Maxine will be incredibly unpleasant to work with. She doesn’t have a history of being a partner, while Maloney, people are finding out, does.”

For her part, Ms. Waters seems confident her long service will carry her through. “Let me let you in on a secret: I am the senior-most person serving on the Financial Services Committee,” she told the 2012 California State Democratic Convention last month. “Barney Frank is about to retire, and guess who’s shaking in their boots? The too-big-to-fail banks and financial institutions and all of Wall Street because Maxine Waters is going to be the next chair of the Financial Services Committee.”